tv Studio 1.0 Bloomberg October 24, 2015 12:00pm-12:31pm EDT
♪ emily: his first love was the piano. he spent 10 years on the road, playing keyboard in a rock band, touring in a beat up van. along the way, he met so many musicians without an audience, that he invented a way to bring the audience to them. in 2000, he began the music genome program, a database that is curated by real human listeners that aims to predict
what you want to hear. you know it as pandora. today, more than 80 million people tune in every month to listen to millions of songs on over 7 billion pandora stations. joining me today on "studio 1.0," pandora founder tim westergren. tim, thanks for joining us. so great to have you. what is on your playlist these days? tim: the center of my musical bull's-eye is ben folds, piano player, a great songwriter. i find other artists i like on his station. a big font of discovery. i have jazz, punk, folk, country. emily: i was pleased to find the "frozen" station, the "let it go" station, the toddler radio station. those are popular in our house. tim: very popular. emily: when did you discover your own musical talent? tim: i began playing piano when i was seven, living in france, and learned enough about chord structures and improvisation to allow me to get around the keyboard. after that, i fell in love with it. after i graduated, i spent the first five years after school playing piano nine hours a day. emily: where did you play?
tim: my living room. emily: but how did you support yourself? i know you played at a holiday inn. tim: i did a bunch of gigs i would like to forget, but i was a nanny after college about five years. i took care of kids. my life was piano all morning, afternoon with kids, and come back home and play piano until i went to bed. taking care of kids is a good preparation for managing a rock band. [laughter] emily: because that came next. you actually went on the road. tim: we are on the road all the time. sort of got to see this whole world, this invisible world of working musicians, for a long time. emily: what was the band called? tim: yellowwood junction. emily: and what point do you say, this is not going to pay the bills? tim: ultimately, film composing was the next chapter of my career. emily: easy to make it in hollywood. tim: i began trying to compose for any film i could get my hands on.
i did a student short film. it could be a commercial. i was getting ready to move to l.a. and jump in wholeheartedly when the idea for this company popped into my head. emily: what was the lightbulb moment? tim: i read an article about aimee mann, the singer-songwriter. had a sizable audience, but not quite big enough for her to warrant the attention of a major. she was in no man's land. it was among all these hundreds of musicians i had known, all living in obscurity, and how much talent there was that nobody knew about. and then in my work as a film composer, one thing i had learned to do was understand someone's taste. i did that by essentially putting them through a musical interview, where i would play songs for them. based on their thumbs up, thumbs down, or their reactions to what i played for them, i would kind of hone in on their taste or what they wanted for their
movie. i thought, that moment, what if i could codify that, and then build a discovery tool? emily: that was the beginning of a seed that became the music genome project. tim: exactly. emily: which is sort of a part human, part algorithm way to figure out what people want. tell us how it works. tim: what we have done since 2000 -- we built this 450 attribute musical taxonomy with every dimension of melody, harmony, rhythm, and performance, kind of like musical dna. we have had musicians, trained musicians, analyze songs one at a time and score them attribute by attribute to capture the musical fingerprint for every song. emily: what are they asking? how happy is this, how much bass is there? tim: it is meant to be very object of. they get trained extensively before they do this.
emily: you pitched this 348 times before an investor said, "i want to put my money on that." tim: yeah. during those years, about 50 people worked without getting paid. it was a tough time. emily: 50 people worked without getting paid for two years? tim: a little over two years. everyone believed the idea was powerful. emily: it was an interesting time, because this was the height of napster. there was a lot of trauma in the music industry. tim: i think the likelihood of our company surviving was small. the music industry at the time, a lot of people thought it would literally disappear. we were technically bankrupt the entire time. for sure. i maxed out 11 credit cards by the end of 2003. and i owed -- god knows -- hundreds of thousands of dollars of debt to people. it was frightening. emily: how may times to do think about giving up? tim: i never thought of giving up. that was not an option. i was going down with the ship. it was not until 2005 we took a left-hand turn and repurposed the music genome project into something different, one-click
custom radio, which we launched in fall 2005. it took off like a rocket ship. we have certainly had near-death experiences since then, but just -- we have had two big chapters of the company, pre-pandora and post-pandora. emily: here we are, the 10-year anniversary of pandora. tim: we had the idea we would be ad-supported. initially, we thought we would be a subscription business, but that was short-lived, because consumers did not accept that. when we grew, our idea was to be ad-supported. it was kind of touch and go for a long time. last year was our first profitable year, as a matter of fact. emily: you went public in 2011. tim: i was proud of that. it is a marker. not many companies get to go public. how unlikely it was was not lost on me that day. it was never far from my mind. that was quite a moment, and i
emily: what do you do now at pandora? tim: i wear a lot of hats. i do a lot of evangelizing for the company. we have many audiences. certainly our employees, we have advertisers, the music industry, capitol hill occasionally. we operate under federal copyright legislation, so that is an important arena for us. emily: what is the future of pandora? tim: the majority of it is music that has never played on radio before. we know a lot about every listener and can communicate with them. we are in the process of putting those tools in the hands of musicians. the goal in the long run is for pandora to not only be a place to listen to music but pandora will be a place for artists to go and commune and connect with their fans. it will eventually give you the
ability to pull out your smart phone, login to your pandora account, zoom into portland, and see how many people there have created a station with your artist name. give a 15-second audio message saying, this is tim from so-and-so. we will be playing a show tomorrow night in portland. emily: and pandora is doing more to give artists some power. you guys are giving them the opportunity to send messages to fans, you are giving them access to data. tim: we surfaced the first part of this, what will be a long set of features, we call pandora amp, the artist marketing program. -- artist marketing platform. any artist can claim their identity, and then be able to log into pandora, and have access to all of their data -- the songs that are spinning, a heat map, so their audience plotted on a map of the country, where their thumb-uppers are so they can target their touring. the next up is to allow them to start sending messages to them. emily: do they have to pay for it? tim: no, it is totally free.
we have an active pipeline with the music industry. there are 2 or 3 concerts a week in our offices. we take advantage, when a band visits, to show them their data. there are 12,000 artists on pandora that have at least 350,000 unique listeners that have created a station using their name. of those 12,000 artists, 80% have never played on the radio. ever. emily: aloe blacc claims his song was the 13th most streamed on pandora in 2014. more than 168 million streams in the united states. that yielded only $12,350 in pandora royalties, which works out to $90 for every million streams. is that accurate? is that ballpark? tim: i cannot do the math in my head, but i am sure it is ballpark correct. emily: $12,000, if that is anywhere near ballpark, does not sound fair.
tim: people talk about spins on radio. a spin on a broadcast station goes out to hundreds of thousands of people. if not more. let me put a context that is important, because this is obviously a heated topic. i think it suffers from a lot of misperceptions. the first thing is, pandora pays half of its revenue in royalties. about $1.2 billion to date. we did $450 million last year. the bulk of that royalty goes to the performer. a much smaller proportion goes to the songwriter, which is what that quote refers to. that ratio is not set by us. that is a subject of law that predates pandora. that is an industry question. how should that money be divided up? the second thing is, pandora is the highest paying form of radio. we pay more than any other form of radio. we pay not only the composer, but the performer. broadcast radio, which is a much bigger industry, does not pay the performer anything at all.
the elephant in the room with this conversation is, why is it that you have this industry that is many times this size that does not pay performers, where we pay substantially? i think that has to get worked out over time. emily: so who should be paying? tim: i think all streaming radio should pay both composers and performers, absolutely. emily: who does that apply to? tim: it applies to every business streaming online, radio, online, off-line. those businesses should be sharing their stake with artists. i think the revenue coming from pandora is being very fairly shared with the business. emily: do you think artists should be paid more? you are an artist yourself. tim: the way we are sharing it is very equitable. emily: taylor swift pulled her music off of spotify. why didn't she pull it off of pandora? tim: it is under compulsory license, which means artists cannot pull music. i think for her and other artists, but they are responding
to a lack of transparency. they see and read about the economics of these businesses and do not see that reflected in the royalty statement. what happens in the middle there is a black box. i think that is happening more and more. i think tidal was triggered by the same thing. emily: you have to think people like taylor and jay-z have the best lawyers out there saying this is how you bring it down. spotify is not making enough money for you. tim: i think it is true that some artists, by virtue of their popularity and scale, have the ability to command more and set the terms more. that is not true of the vast majority of artists. emily: is your music on pandora? tim: there is, yeah. emily: is there a tim westergren station? tim: it is called yellowwood junction. emily: will pandora ever offer live traffic and weather, sports? ♪
♪ emily: the quest for the perfect playlist now includes spotify, itunes radio, beats, i heart music, google music amazon music, tidal now. how do you think about -- who is my competition, and who am i? tim: anybody who has a radio product. broadcast radio is the biggest competitor. itunes radio, when it came out, direct competitor. when we think about our future, it is about, how do we remain the best playlist-building business around? i think so far the numbers bear it out. we keep growing in spite of this competition. emily: sirius xm, is that a competitor? tim: absolutely. emily: apple buying beats? is that something that you think about? tim: with apple, a smart company. never think you know what they are doing. emily: beats music will be relaunched this summer. maybe a new name. how worried are you?
tim: we have not lacked competition for a long time. i keep learning year after year, building a great business is -- playlist is fantastically hard to do. we find, over time, more and more confidence in the differentiation we have. emily: did you ever meet steve jobs? tim: yeah, i did. emily: did you talk to him about the future of music? tim: we said two words to each other. we had the great honor to be on stage at cupertino when they were talking about multitasking on the iphone and wanted pandora to be highlighted. myself and my ceo were part of the presentation. tom and i spent a week in a room rehearsing a three-minute presentation, and we were kept under lock and key and escorted in and out of the building. we had to rehearse the talk many, many times for a successively smaller and smaller group of executives, until the final comes up. he did say "good job" after our presentation. i take that as great praise. emily: there has always been simmering talk about apple and
pandora. why doesn't apple buy pandora? did apple try to buy pandora? tim: we don't comment on things like that, of course. i look at them as this incredible partner. it makes sense that they have radio products and things that would compete with us, but stepping back, they sort of invented this field we benefit from. emily: spotify just raised $400 million out of an $8.5 billion valuation. spotify is focused on subscriptions, pandora is more focused on ads. what you think about that comparison? tim: we stick to our knitting. this is an exciting business with drama and news. the best we can do is stay focused on what we do. we have figured out how to monetize internet radio, which no one else has. we have hundreds of sellers in 50 markets around the country who are now penetrated into local advertising. in the long run, that kind of
foundation is how you build a really big business over the years. emily: do you think people do not want to pay for music? tim: i think people will absolutely. there will always be a large number of people who want to listen to music without advertising and are willing to subsidize that. i think there will be an even larger audience that will pay to transact with an artist to whom they feel connected. and i think that is one of the great opportunities pandora can unlock. emily: spotify started abroad. it is in 50 countries. pandora is in three countries -- the u.s., australia, new zealand. is that something you will figure out, or is this how your business is going to be? tim: i think international is inevitable. it is not a question of if, it is when. for us, it is a matter of finding the right license. emily: in the next era, will artists negotiate directly with streaming services? tim: we have done direct deals. the key is, do both sides understand the value the other brings? emily: it seems like tidal, apple, spotify, they get the
buzz. does it affect the business? the stock is down from highs over the summer. tim: like the little engine that could. we have been through a lot of ups and downs. that has been part of our dna as a culture. we are a modest company. we treasure humility. it is a company principle. there has been 25 "pandora killers" that i can count. we do not get frustrated by who has the limelight at any given moment. that is not important. emily: will pandora ever offer live traffic, weather, sports? tim: there is non-music, sports news -- i think that will eventually find a home on pandora. the thing is, how do you do that in a way that is elegantly integrate it with the music experience? it would be nice to be listening to a station and get on the hour bloomberg tv, or on the hour geographically targeted sports or news. so -- eventually.
right now, we are focused on music. but i think in time. emily: what about podcasts? tim: again, another interesting category for us. we have comedy, so we do have non-music content. what we would like to do is bring our own twist. how do we help that be easily navigable? had we bring intelligence, a curation approach? emily: what about music videos on pandora? tim: again, it is an interesting thing to consider. only a fraction of our catalog have quality music videos. that could change over time. you can see potentially elegant ways to give someone that little, i want to snack on some video right now and do it on pandora eventually. emily: we have a presidential race happening. i know you guys are trying to add local and national ad dollars. what is your pitch to advertisers right now? tim: our political advertising business has grown exponentially over these years. in some ways, it is tailor-made for it, because we can geographically target messaging
through audio, video messages. i anticipate that will grow and grow. one of the amazing things about data -- we can predict based on your zip code and the style of music you are listening to your political affiliation, with 90% accuracy. emily: who are the democratic artists and the republican artists? tim: music defies stereotypes, so i am always loathed to make them, but the data is powerful and predictive. emily: are you playing music anymore? tim: i went cold turkey when i founded the company. i did not have time for anything and needed a break. it was years away from the piano. i have had the itch for a while, and now i am back into it. emily: what is next for tim westergren? tim: i want to get back into composing, which is my real passion. and then i would really like to see pandora as a platform to really have a positive social impact.
emily: pandora in 10 years, where will it be? tim: it will be global, for one. it will have billions of people on it. i think it will also change what it means to be a musician. and i remember in my early 30's thinking, gosh, i feel so much pressure to quit music and go get a job, because i was not making enough money. and i know a lot of musicians who went through that. the vast majority do. and that is a huge loss for our society, because artists do not get to keep making art. it is true of all forms of art. what if music was a more stable career? maybe tens of thousands of musicians could take a living at, not just a few hundred. maybe it would literally change the place of music and culture. and that is what i think we can affect. emily: we will check back with you in a decade, i guess. tim: i guess. emily: tim westergren, thank you for joining us. great to have you. tim: thank you. you bet. emily: thank you. ♪ the only way to get better is to challenge yourself,
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♪ emily: imagine a global classroom where anyone can learn anything, anywhere. all built by one man. he got his start as a hedge fund analyst, tutoring his cousin on the side. he posted a few tutorials on youtube that became so popular, he made it his life's work. the khan academy now serves 26 million students, with over 1 million teachers, teaching everything from chemistry to computer programming, from kindergarten to calculus. and the best part is, it is all free. joining me today on "studio 1.0," khan academy founder and